"We are the only country in history that ever deliberately changed its ethnic makeup, and history has few examples of 'diversity' creating a stable society." - Richard Lamm, former governor of Colorado

Tuesday, August 14, 2007

African-Americans, Hispanics and subprime mortgages

Now that the long predicted dubious mortgage crash has finally arrived, I keep remembering that going back to the early 1990s, the government has been twisting the arms of private lenders to get them to lend more mortgage money to minorities than the private firms believed was justified by colorblind principles of creditworthiness.

This history seems to have disappeared down the memory hole because it's all in the sacred cause of fighting discrimination (real or imagined), but I recall it distinctly from when I was a daily reader of the Wall Street Journal in the 1990s.

For example, there was a celebrated 1993 study by the Boston Fed showing that minorities' mortgage applications were rejected at a higher rate. (Peter Brimelow pointed out in Forbes that minorities did not have lower default rates, suggesting that lenders were behaving in a rationally colorblind manner, but that was not a popular view at the time.)

Have the chickens finally come home to roost?

I'm sure the private financial markets were quite capable of blowing up a big bubble by themselves in the eternal see-saw struggle between greed and fear, but this political pressure for lending to minorities with doubtful credit must have exacerbated the problem. About half of all mortgages for blacks and Hispanics are subprime, versus about one-sixth for whites.

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